Click to read the original text for details We cannot refuse beer, because it is a model of transformation by time. In the evening when the moon is not yet visible and the sun has not fully faded, the red of oil-burst crayfish stains your fingers, and under the pale blue twilight, glasses clink together—that is the sound of summer. But in reality, the production and sales volume of the beer market has been declining year after year. As the world's most consumed beverage after water and tea, China's beer industry saw output from enterprises above designated size reach 35.62 million kiloliters in 2021. Excluding 2020, which was affected by the pandemic, this represents a decrease of 2.03 million kiloliters compared to 2019's 37.653 million kiloliters. A decline in an industry either means consumers' needs have found better solutions, or the industry is undergoing transformation with higher value-added products, allowing each unit to generate more value. Beer is precisely at this stage. The year-on-year decline in data is not a bad omen. In fact, despite falling production and sales, the beer industry's profits have been rising year after year. In 2021, the beer market achieved sales revenue of 158.4 billion yuan and profits of 18.68 billion yuan. Compared with 2019 data, 2021 saw both sales revenue and profits rise despite lower production, indicating that the entire beer market is experiencing a simultaneous increase in average transaction value and profit margins. Comparison chart of beer market production, sales revenue, and profits in 2019 and 2021 (Note: The China Alcoholic Drinks Association did not directly disclose profit data for 2019, only announcing a 10% profit increase; the 2019 profit figure in the chart is calculated from 2018 beer industry profits) Less production but higher profits—corresponding to changes in the beer market, young people are drinking less but drinking better. The fundamental logic behind market changes is consumer change. The consumption purpose of China's younger generation has shifted from "pleasing others" to "pleasing oneself." Under the consumption trend led by the new generation, craft beer has become an industry hotspot, with many players eager to enter this blue ocean to find their promised land. Facing such a market poised for takeoff, we interviewed several craft beer practitioners, including Wang Long, founder of the craft fresh beer brand [Jingdu Fresh Brew], which recently secured a new round of financing; Li Ge, manager of a self-brewing beer pub; and executives from traditional bottled beer manufacturers. In their eyes, the seemingly beautiful craft beer market still has many problems to be solved. 01 A Small Demand Growing Rapidly Within a Large Category As a combination of water, malt, yeast, and hops, a sip of craft beer instantly evokes a sense of grandeur. Compared to industrial beer, the uniqueness of craft beer makes drinking interesting. Craft beer is not a sudden market; it is a natural evolution after beer entered a stock market. Beer is a large category, but industrial beer consumption has declined year after year since peaking in 2013. From a cyclical perspective, China's beer market is undergoing a critical stage of transitioning from growth to maturity. The industry is highly concentrated, and leading enterprises have basically completed nationwide capacity layout and channel construction. From the perspective of consumer demographics, the proportion of the main beer-consuming population (ages 20-34) in China's total population has been declining year by year, from 27.3% in 2000 to 21.8% in 2020. The era of relying on consumer population growth to drive beer sales has quietly ended. The industry's profit driver will shift from "volume growth" to "quality growth." Young people are not abstaining from alcohol; they just dislike drinking bland, low-end industrial beer. Historically, the category structure of China's beer market has been dominated by lagers. This bottom-fermented beer is light in taste, clear in body, low in production cost, and suitable for large-scale production. According to Wang Long's recollection, he first encountered craft beer during college. "At that time, I felt the beer tasted great, but due to purchase convenience and price issues, I couldn't drink it often. Back then, I thought if I ever started a business, it would either be coffee or craft beer." From 2013 to 2020, the compound annual growth rate of craft beer was as high as 35.38%, far exceeding the beer industry's compound annual growth rate of -5.27%. Wang Long believes the current craft beer market is a small demand growing rapidly within a large category. (Photo provided by interviewee) In terms of overall consumer acceptance, craft beer allows people to savor it like wine or whiskey, unlike drinking industrial beer which only offers a refreshing, prickly sensation. Moreover, after purchasing craft beer, consumers' repurchase rate is higher than that of industrial beer. Wang Long stated, "Looking at penetration rates, craft beer is very similar to the early coffee market. Twenty years ago, when Chinese people first came into contact with coffee, they started with Nestlé's 3-in-1. Later, cold brew, drip coffee, and pour-over coffee emerged, and each category produced successful brands." Beer is a large category. On the path of category segmentation and innovation, there are two forces: on one hand, the pull generated by consumers' demand for good products. On the other hand, the push generated by enterprises in a stock market to upgrade products and quality for competition. Large categories are being segmented, and many concepts compete simultaneously, such as raw beer, fresh beer, craft beer... Under this push and pull, craft beer has been elevated to a trend. Thus, we can see that since 2021, more than 20 craft beer transactions have occurred. Billions of yuan in financing have been "injected" into the craft beer track. Moreover, the craft beer track has seen cross-industry enthusiasm. Dingdong Maicai launched its own craft beer brand "1972 Farm," and India Pale Ale (IPA) has become a signature product of Hema's own craft beer. At the same time, traditional beer manufacturers have begun adjusting their product structures, limiting production of low-end beer (3.5 yuan and below), and launching mid-to-high-end products around the 10 yuan price point, such as Snow Black Lion White Beer, Tsingtao White Beer, Snow Mars Green, and even the ultra-high-end Snow "Li" beer priced at 999 yuan. 02 The Pain of a High-Growth Track An industry's evolution can be divided into several stages. Initially, when consumers' basic needs are identified, brave pioneers emerge, and the industry begins "wheelbarrow-style" development. Subsequently, products gain market recognition, and niche markets leap into the public eye. At this point, the industry experiences its first expansion, entering a capital-driven phase. Entrants flood in like carp crossing a river, production and sales volumes continue to rise, and during this process, "same product, different labels" phenomena occur frequently. Inconsistent industry standards affect consumers. Consumers demand better products that meet higher-order needs, creating consumption pull. Against this backdrop, a set of standards based on consensus gradually emerges within the industry, regulating orderly improvement, facilitating transformation and upgrading, and leading high-quality development. Finally, the market transformation is completed, entering a second expansion with a virtuous cycle of capital, forming capital support. Among the four stages—rapid development, pain, stability, and maturity—craft beer is currently in the pain stage caused by inconsistent standards after rapid development. "Jingdu's products are labeled as 28-day fermentation, but in reality, we ferment longer, usually between one and two months. However, some small brands do not use long fermentation to enhance thickness; instead, they add alcohol," Wang Long said, then used coffee as an example: "For instance, during the land-grabbing phase of the coffee market, some people used roasted coffee powder to pass off as freeze-dried coffee powder." (Photo provided by interviewee) The direct drawback of such practices is that consumers experience a gap between expectations and reality. Using blending instead of long fermentation causes headaches and thirst after drinking, leading consumers to mistakenly believe this is a common problem with craft beer. As a new thing, the state has not yet issued corresponding national standards for craft beer. Without standards, the final interpretation right belongs to producers. An industry insider said, "China's legal system is still blank regarding the definition of craft beer. Quite a few small brands only comply with basic food safety regulations, which still carries risks." Take Dingdong Maicai's "1972 Farm" craft raw beer as an example. Its ingredient list contains rice, which does not strictly qualify as craft beer. Li Ge, manager of a self-brewing beer pub, said, "In principle, craft beer should only contain water, malt, hops, and yeast, without adding corn or rice." In addition to lacking industry standards, craft beer currently faces the problem of uneven profit distribution. Normally, a healthy industry structure should resemble a "smile curve," where technology R&D and brand services occupy high-profit positions, while assembly and manufacturing factories sit at low-profit positions. Although Jingdu has not built its own factory or production lines, Wang Long stated that Jingdu has its own R&D team and recipes. "We can directly negotiate with factories, requiring them to use wheat from specific origins, specific hops and yeast, how to feed ingredients, fermentation time, and then calculate their machine wear costs, water and electricity costs, labor costs, to minimize production costs." (Photo provided by interviewee) However, some brands choose to delegate everything to factories, only doing design and using whatever recipes the factory has. Business models like Jingdu's, which focus on both ends of the smile curve but not the bottom, are rare. It is highly likely that behind the bizarre, beautifully packaged, and trendy bottle labels on shelves, they all point to upstream factories like Xiyingmen, Qiandaohu, or Lehui International. These roles, which provide shovels to the "gold diggers" trying to strike gold in the craft beer track, actually capture the most profit. 03 Cold Thinking For Li Ge, more and more unfamiliar faces have appeared in his shop in the past two years. "In the past, craft beer was a small circle. There were only a few local drinkers, and I did business with regulars." As the manager of a self-brewing pub that has been open for nearly ten years, Li Ge is more familiar with the business model of inviting a group of foodies every weekend, turning on the beer tap, and watching the amber liquid flow into the glass with the anticipation of opening a blind box, with foam rapidly climbing the glass wall—in his eyes, like crops at autumn harvest. "Basically, we hold a tasting session every week. It's called a tasting, but it's actually a bunch of alcoholics getting together to drink," Li Ge said. "If feedback is good, I'll put it on the next week's updated menu. If the brew doesn't turn out well, we discuss how to improve the recipe and process." Craft beer—this is the English name for jingniang pijiu, literally translated as handmade beer. In its original cultural context, it refers to a group of geeks with an old-school spirit, like Li Ge, gathering in a highly stylized way to build group identity, opposing industrialization, standardization, and homogenization, and emphasizing individuality and diversity. From historical experience, no matter how exclusive and vocal a culture is, the ultimate outcome is usually being incorporated into mainstream life, becoming a consumption style and market style. "Once, a young couple came to the shop. They said they found my place through a certain grass-planting app and specifically asked for craft beer. I asked, 'Do you want a stout, pilsner, IPA, or porter?' They said, 'We just want craft beer.'" Li Ge said with a mix of amusement and helplessness: "You know they're not joking; they're just ignorant. In their minds, craft beer is good and high-end." When a concept detaches from its original context and becomes a symbol of status and taste, its meaning also transforms and changes. Li Ge said he recently wants to return to lager wheat and brew some "industrial beer" that is a bit different, using craft methods. "Does craft necessarily equal high-end? Craft is just a processing method, not a basis for classification. Take coffee as an example: the same Americano, whether you grind the beans yourself and brew it, or use a coffee machine, you can't call the former 'craft coffee' and the latter 'industrial coffee.' In the end, both are Americano." As an indisputable fact, craft beer has indeed become an investment hotspot and market opportunity, but beer is beer, and it won't change because of a prefix. Perhaps, whether it's craft or not should not be decided by the seller, but by the drinker. 【Want Want Group Chief Marketing Officer, Huang Yongsong】Salute to channel partners, meet in Chengdu, August 31 - September 2, 2022 (7th) China FMCG Channel Innovation Conference. -END-